PANCHAMAN TRADERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In exercise of the power of revision under Section 263 of the IT Act, 1961 whether the CIT is justified in directing to reopen the computation of income which was not interfered with by the appellate authority in the appeal filed by the assessee on other grounds, is the question to be considered in this writ petition.

(2.) Short facts. The petitioner is the assessee, a partnership firm. The assessment year is 1992-93. Section 44AC in the matter of computation of income was available on the statute book at the relevant time (omitted w.e.f. 1st April, 1993). It was the usual practice at that time, both for the assessee and the Revenue, to take 40 per cent of the purchase price of alcoholic liquor for human consumption other than Indian made foreign liquor (IMFL) as the profit. The petitioner also adopted the same method and returned an income of Rs. 5,25,645 from arrack business (40 per cent of the purchase cost). After setting off the loss in the toddy business the net income was computed as Rs. 2,17,217. But the AO reduced the loss on toddy business from Rs. 3,08,428 to Rs. 1,54,215 and added a sum of Rs. 7,00,000 as credits and the assessment was completed on 7th Feb., 1995 (Ext. PI). The matter was pursued in appeal and the CIT(A) disposed of the appeal by setting aside the assessment and directing the assessing authority to issue summons to the partners concerned, examine them and permit the appellant (petitioner) firm to cross-examine the partners and then enter a finding regarding the genuineness or otherwise of the credits. That order is dt. 13th Dec, 1995 (Ext. P2). Pursuant to Ext. P2 the assessing authority passed Ext. P3 assessment order dt. 6th March, 1998. Income from sale of arrack was not touched and the addition made as per Ext. PI was sustained. The matter was pursued in appeal; the same was dismissed as per Ext. P4 order dt. 4th Aug., 1999. Ext. P5 appeal before the Tribunal filed against Ext. P4 is pending. While so, Ext. P6 notice was issued proposing to invoke Section 263 and revise Ext. P3 order of assessment dt. 6th March, 1998, in view of the decision of the Supreme Court in Union of India and Anr. v. A. Sanyasi Rao and Ors. . Petitioner took up several contentions, mainly regarding limitation and jurisdiction. The contentions were repelled and Ext. P10 order was passed by the CIT directing the assessing authority to recompute the income on the basis of the decision of the Supreme Court referred to abovecompute the income on the basis of the P & L a/c and not at 40 per cent as was done on a wrong interpretation of Section 44AC. The Supreme Court held that Section 44AC r/w Section 206C is only a machinery provision and not a charging section and that those provisions do not dispense with the regular assessment as provided under Sections 28 to 43C of the IT Act.

(3.) Sri P. Balakrishnan, learned Counsel appearing for the petitioner contends that the computation of income as per Section 44AC had attained finality as per Ext. PI order of assessment dt. 7th Feb., 1995 as confirmed in Ext. P2 appellate order dt. 13th Dec, 1995. Therefore, the same issue was not liable to be reopened in exercise of the powers under Section 263 of the Act. It is also barred by limitation since Ext. P10 order is passed only on 30th March, 2000 whereas the issue had otherwise become final in the assessment order dt. 7th Feb., 1995 as confirmed in the appellate order dt. 13th Dec, 1995. It is also contended that there is no error to be qualified as causing prejudice to the interests of the Revenue and hence the CIT lacks jurisdiction to pass an order under Section 263 of the Act.